historical-returns-infographic-2019-updated.pdf (marketindex.com.au)
I love the figure on page 1 and the table on page 2. This sums up everything you need to know about shares. You have the classic "normalish" distribution of the histogram in Figure 1, which shows the most common annual return is between +10% and +20%, with almost all returns between -30% and +50%. However, there are some outliers there both negative (between -50% and -40% in 2008: ouch!) and positive (between +60% and +70% in 1983 and 1975: woohoo!). Then the table shows how the returns are all over the place, with no apparent rhyme or reason. If you think the period after the big hit of 2008 from 2009 to 2019 was great for investing have a look at 1975 to 1980, or 1931 to 1934! This shows how if you hold on after a large drop the odds are you will rocket back out of it.
These 2 pages are pretty much all the info you need. If you are stressed out during a decline and think you need to sell come back to them. If you sell, when will you buy? Can you predict the future? Selling during a decline in the share market means you have to make 2 correct decisions - the optimal time to sell AND the optimal time to buy. If you are selling out that means you think it will drop a LOT more and stay down, otherwise you will just hold on and not sell. So what if it doesn't drop any more after you sell? When will you admit you were wrong and buy back in at a higher price? Or will you lean on your confirmation bias and look for news stories supporting your view that this is just a positive blip and it will get lower soon? Then what happens if it doubles in value from when you sold? Surely that is too high so you can't buy back in then?
Trying to time the market is a suckers game, don't play it. Buy when you can, as often as you can, for as long as you can. Gradually, then suddenly you will end up with a lot of money.
I love the figure on page 1 and the table on page 2. This sums up everything you need to know about shares. You have the classic "normalish" distribution of the histogram in Figure 1, which shows the most common annual return is between +10% and +20%, with almost all returns between -30% and +50%. However, there are some outliers there both negative (between -50% and -40% in 2008: ouch!) and positive (between +60% and +70% in 1983 and 1975: woohoo!). Then the table shows how the returns are all over the place, with no apparent rhyme or reason. If you think the period after the big hit of 2008 from 2009 to 2019 was great for investing have a look at 1975 to 1980, or 1931 to 1934! This shows how if you hold on after a large drop the odds are you will rocket back out of it.
These 2 pages are pretty much all the info you need. If you are stressed out during a decline and think you need to sell come back to them. If you sell, when will you buy? Can you predict the future? Selling during a decline in the share market means you have to make 2 correct decisions - the optimal time to sell AND the optimal time to buy. If you are selling out that means you think it will drop a LOT more and stay down, otherwise you will just hold on and not sell. So what if it doesn't drop any more after you sell? When will you admit you were wrong and buy back in at a higher price? Or will you lean on your confirmation bias and look for news stories supporting your view that this is just a positive blip and it will get lower soon? Then what happens if it doubles in value from when you sold? Surely that is too high so you can't buy back in then?
Trying to time the market is a suckers game, don't play it. Buy when you can, as often as you can, for as long as you can. Gradually, then suddenly you will end up with a lot of money.